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Sunday, March 11, 2007

LIQUIDITY TALK. GEORGE SOROS ON GLOBAL LIQUIDITY. Chrystia Freeland & James Politi. "George Soros interview", Financial TimesThe Financial Times interviews George Soros, and the legendary investor talks ... liquidity! Soros adds little to the current debate, but the very simplicity of his views makes them worth pondering. On the yen carry trade, Soros says:

... the fact that the yen is basically interest free and a lot of money is coming from borrowing and a lot of Japanese money going abroad. And the yen was weakening so a lot of people got into that trade and there’s a little bit of a shake-up going on ... I mean the appreciation of the yen shows that there is a shake-out.

On global liquidity, Soros takes the view of classical economists ― the US current account deficit is the key driver of liquidity growth:

... you have got the slowdown in the US economy, the housing situation where you haven’t yet seen the total effect of the slowdown. It’s still halfway through. So will that actually result in a significant slowdown in consumer spending? That is yet to be seen because you have had mortgage equity withdrawals of nearly $900bn a year. Now it has fallen to $300bn and it basically will disappear. And that will affect consumer spending. Now, as the US slows down, the emerging markets are still going very strong, China and India, so you will actually go back to a more balanced economy with more growth abroad and correcting the deficit. But that will see less liquidity in the market because it’s really the trading balance creating the same trillion dollars of Chinese reserves and similar amounts in other countries. That has actually fed this global liquidity splurge ... It will have an effect on the [Chinese stock] market and I don’t think that we are in any way nearer a crash. But it’s a warning crack ... But, on the other hand, they don’t want it to fall out of bed either so I think that you’ve had that sort of initial impulse and I think the Chinese market will be kept on an even keel, certainly until after the Olympics.